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Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection

Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection Grossman and Helpman (1994) present a theory of endogenous protection by explicitly modeling government-industry interactions for which mere “black-box” models previously existed. They obtain a Ramsey pricing-type solution to the provision of protection which emphasizes the role of inverse import penetration ratios and import elasticities. On the lobbying side, the model makes predictions about lobbying competition and lobbying spending according to deadweight costs from protection. The model not only makes for richer theory in terms of rigor and elegance, but its predictions are directly testable. Whether the Grossman-Helman model stands up to real-world data is investigated in this paper. Predictions from both the protection side and lobbying side are tested using cross-sectional U.S. nontariff barrier data. We also compare the “second-generation” Grossman-Helpman model with a more traditional specification. Our results call for serious consideration of this model in the political economy literature. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Economics and Statistics MIT Press

Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection

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Publisher
MIT Press
Copyright
© 2000 President and Fellows of Harvard College and the Massachusetts Institute of Technology
ISSN
0034-6535
eISSN
1530-9142
DOI
10.1162/003465300558579
Publisher site
See Article on Publisher Site

Abstract

Grossman and Helpman (1994) present a theory of endogenous protection by explicitly modeling government-industry interactions for which mere “black-box” models previously existed. They obtain a Ramsey pricing-type solution to the provision of protection which emphasizes the role of inverse import penetration ratios and import elasticities. On the lobbying side, the model makes predictions about lobbying competition and lobbying spending according to deadweight costs from protection. The model not only makes for richer theory in terms of rigor and elegance, but its predictions are directly testable. Whether the Grossman-Helman model stands up to real-world data is investigated in this paper. Predictions from both the protection side and lobbying side are tested using cross-sectional U.S. nontariff barrier data. We also compare the “second-generation” Grossman-Helpman model with a more traditional specification. Our results call for serious consideration of this model in the political economy literature.

Journal

The Review of Economics and StatisticsMIT Press

Published: Feb 1, 2000

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